Institution quality and stock price crash risk: a global perspective
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 4 September 2023
Abstract
Purpose
This study aims to provide empirical evidence on the relationship between formal institutions and stock price crash risk from a global perspective.
Design/methodology/approach
This paper uses data of 35,468 firms globally over the years 1987–2019 and address the endogeneity issue by employing the Mundlak random effects estimator.
Findings
The authors find a significant negative impact of institution quality on stock price crash risk (i.e. better institutions reduce crash risk), after controlling for common determinants of crash risk such as leverage, return on asset, firm size, investment, etc. as well as macro factors such as GDP growth. This effect is robust to different measures of crash risk and sub-indicators of institutions quality. In addition, the authors also find this effect to be universally present in economies characterized by different levels of income.
Originality/value
To the best of the authors' knowledge, there's no known study that explores the potential causal relationship between institution quality and stock price crash risk. Therefore, the research topic in this study is original and can contribute significantly to the existing literature.
Keywords
Acknowledgements
Corrigendum: It has come to the attention of the publisher that the article “Institution quality and stock price crash risk: a global perspective” by Cong Wang and Yifan Lu, published in International Journal of Managerial Finance, Vol. ahead-of-print, No. ahead-of-print, https://doi.org/10.1108/IJMF-01-2023-0030, contained a factual error in the design/methodology/approach section of the structured abstract. This was introduced during the submission process. “This paper uses data of 35,468 firms from 205 developing and developed countries over the years 1987–2019…“has now been corrected online to” This paper uses data of 35,468 firms globally over the years 1987–2019…”. The authors sincerely apologise for the error and any confusion caused.
Citation
Wang, C. and Lu, Y. (2023), "Institution quality and stock price crash risk: a global perspective", International Journal of Managerial Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJMF-01-2023-0030
Publisher
:Emerald Publishing Limited
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